Have you seen that ad that says: “STOP FACTORING” … but when you click on the ad it takes you into the process of … factoring? Love it!
If you’re considering this deviation of the process open your eyes wide and read on because your customer is still going to know (minimally they change the assigned mailing address as does any factor!). And credit checks? Don’t find out the hard way!
That said the costs may seem better but the reality is that the pricing for factoring is competitive – and sometimes even less than with this process – and the value added services a factor offers goes beyond the basic transactions so why not get more bang for your buck?
DO YOU HAVE COVENANTS? Your accounts receivables are an asset and if your bank is not fully aware that you’re selling them off you might want to confirm that you’re not out of covenant if you have a loan … unless you want to risk having your loan called which will really make your life a lot of fun – NOT!
• Who actually owns the account receivable?
• Does the seller have any liens? IRS issues? Judgements? If they do and you buy their receivables are you aware that the transaction may be turned around up to 90 days after it occurred … and you stand to lose!
MORE? What is the condition of that invoice … which is your collateral i.e. Is the sale complete and/or the services accepted and if so who has confirmed that it this?
LASTLY: How is the credit of the payer and who establishes and guarantees that for you? And what happens if the invoice doesn’t pay?
Does it make sense that when you consider many of the confirmations and “check offs” that factors execute before they’ll fund a deal or buy an invoice that there are valid and serious reasons for every question and every verification?
Let’s be financially responsible: Factors are in the business of ensuring cash flow at a competitive price … and granted in some cases the pricing may not always be the lowest … but without any hiccups that could cause problems.
“STOP FACTORING” says the ad … but when you sell your invoices or invest in buying invoices you’re part of the process of factoring so to avoid being caught in a process that is a watered down version of a proven process keep this article in mind and ‘peal back the onion’ real well to ensure you know what you are getting yourself in to!
Better yet: Contact me and I’ll send you a white paper covering entitled “Ten Things You Should Know About Factoring” because let’s face it: Education is your key to success!
Ernie Brown ebrown@finance-manager.com